I'm in a deep trouble at the last TAX minute and desperately need your
advice regarding the distribution of my company's match in my (401)K
account. I have to pay the penalty and tax on this distribution, according to the tax form I received from my old (401)k plan.
Last year I got a new job and tried to transfer my fund from my old
company (401)k plan to my new company's. There three parts in that (401)k account:
* My pre-tax contribution
* My after-tax contribution
* My old company's match (in its stocks)
According to the administrator of my old (401)k plan, only the pre-tax
portion can be transferred to my new (401)k plan. The after-tax
contribution will be rollover to my non-deducible IRA. The stocks deposited by my old company can be only distributed to me. I can't keep them in the old plan if I take the pre-tax contribution. As result,
* the pre-tax portion was transferred to my new (401)k plan
* the after-tax portion was sent to me although I had instructed them to deposit into my IRA account directly(with the institute name and acc#). I deposit the check into my IRA the next day I got the check.
* the stock certification from the company match was deposited into the same IRA account on the same day as after-tax distribution For the value of $9889 (stocks), $34.08 tax was withhold by the plan. I deposit $34.08 into the same account.
While filing my 2000 tax return, I find out the distribution from my old company's match is marked as early distribution(code 1), according to the tax form I got from my old plan. I have to pay the penalty and tax on it. I thought the company match is part of the retirement plan and I wouldn't own any tax or penalty on it as long as I keep it in the qualified plans. Did I missing some thing? Is anything I can do before 4/15/01 to avoid the penalty and the tax. Any advice is greatly appreciated.
Lee

Seems you should be able to rollover company match, though I am not sure since it came out of the plan as stock. I am more concerned with your rolling over the after-tax money. This cant be done, nor would it be taxable. Since you did it, I am not sure what problems will result.

According to the administrator of my old (401)k plan, only the pre-taxportion can be transferred to my new (401)k plan.

Please stay away from the "table data" box. Coupled with no line breaks (carriage returns for those of us who remember typewriters), it creates an unreadable post.

The administrator is correct about the rollover to your new 401(k).

The after-tax contribution will be rollover to my non-deducible IRA.

This is wrong. Your after-tax contributions must be distributed, tax-free, to you when you leave the plan. Earnings may be rolled into an IRA or your new plan. Let me, maybe, take that back. I don't know whether your after-tax contributions can be rolled as such into your new plan. I do definitely know that they can't go into any kind of IRA.

The stocks deposited by my old company can be only distributed to me. I can't keep them in the old plan if I take the pre-tax contribution. As result,

* the pre-tax portion was transferred to my new (401)k plan

* the after-tax portion was sent to me although I had instructed them to deposit into my IRA account directly(with the institute name and acc#). I deposit the check into my IRA the next day I got the check.

As you now know, that was in error. This constitutes a contribution to your IRA. If it, along with other year 2000 contributions, is more than $2,000 you must remove the excess and the earnings on it by Monday to avoide the 6% excess contribution tax.

If this is an allowable contribution to your IRA, be sure to complete Part I of Form 8606 to report the nondeductible contribution.

* the stock certification from the company match was deposited into the same IRA account on the same day as after-tax distribution For the value of $9889 (stocks), $34.08 tax was withhold by the plan. I deposit $34.08 into the same account.

While filing my 2000 tax return, I find out the distribution from my old company's match is marked as early distribution(code 1), according to the tax form I got from my old plan. I have to pay the penalty and tax on it. I thought the company match is part of the retirement plan and I wouldn't own any tax or penalty on it as long as I keep it in the qualified plans. Did I missing some thing? Is anything I can do before 4/15/01 to avoid the penalty and the tax. Any advice is greatly appreciated.

See the instructions for line 16 of the 1040. This is a rollover which results in a zero on line 16b and no basis for a premature distribution penalty.

Now I understand how the (401)k distribution works and have to deal with two issues:

1. Remove the excess IRA contribution before 4/162. Convince IRS that the stock distribution isn't an early withdraw although the 1099-R said so. I've contact the administrator at my old (401)k plan about re-classifing this portion of the distribution as a rollover and been refused.

My questions now are:

1. How to convince IRS that the stock distribution is a rollover not an early withdraw? Besides the deposit receipt of the stocks and account statement, what are other proofs needed?

2. How to handle the remove of the excess IRA contribution without triggering another unexpected IRA distribution causing me trouble in 2001?

3. Is there a way, besides annuities, I can keep the after-tax contribution growing tax-free?

BTW - The stocks were distributed to me because my new plan doesn't accept the stock rollover.

What bother me is that on the 1099-R form, $9923.08(stock portion) is listed in box 2, the distribution code in box 7 is "1". Reporting this as rollover will mis-match the info IRS has. Do you see a potential problem down the road?

What bother me is that on the 1099-R form, $9923.08(stock portion) is listed in box 2, the distribution code in box 7 is "1". Reporting this as rollover will mis-match the info IRS has.

For (eyes cast upward) the last time, no it won't. Why do you think they have the instruction to write "rollover" on line 16? If they already knew about all rollovers, that instruction wouldn't be needed. Trust me, the Returns Processing people at IRS don't allow a single data entry keystroke on a return if it isn't needed.

You report the rollover, and so does the IRA custodian. What else do you think they need?